© Prentice-Hall 2005 6-1

6Strategic Management in Action

Mary Coulter

Competitive Strategies

© Prentice-Hall 2005 6-2

Learning Outline

What is competitive advantage and how do we get it? Explain the importance of competitive advantage. Describe how an organization’s competitors can be

determined. Discuss how resources, capabilities, and core

competencies lead to competitive advantage. Explain the relationship between competitive

advantage and competitive strategies.

© Prentice-Hall 2005 6-3

Learning Outline (contd.)

What are the competitive strategies? Describe Miles and Snow’s adaptive strategies. Describe Abell’s business definition framework and

his competitive strategies. Describe Porter’s generic competitive strategies. Explain what is meant by “stuck in the middle.” Describe an integrated low-cost differentiation

strategy. Explain Mintzberg’s generic competitive strategies.

© Prentice-Hall 2005 6-4

Learning Outline (contd.)

Implementing, evaluating, and changing competitive strategy Describe how an organization’s competitive strategies

are implemented, evaluated, and changed. Explain what role functional strategies play in an

organization’s competitive strategies. Discuss the various competitive postures and actions

an organization can take.

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Competitive Advantage

Key concept of strategic management Sets an organization apart What competitive strategies are designed to

exploit Implies other competitors Can be eroded easily and quickly by

competitors

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Understanding the Competitive Environment

What is competition?When organizations battle for some desired

object or outcome

Who are our competitors? Industry perspectiveMarket perspectiveStrategic groups perspective

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Figure 6.2 Industry and Market Approaches to Defining Competitors

Industry

Same Product-Service

Number of Sellers Degree of Differentiation

One LowPure Monopoly

Few LowPure Oligopoly

Few MediumDifferentiated Oligopoly

Many HighMonopolistic Competition

Many NonePure Competition

Market

Customer Needs

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Table 6.1

Possible Strategic Dimensions for Identifying Strategic Groups

• Price• Quality• Level of vertical integration• Geographic scope• Product line breadth-depth• Level of diversification• R&D expenditures• Market share• Profits• Product characteristics• Any other relevant strategic factor

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Figure 6.3 Strategic Groups: Cosmetics Industry D

istr

ibut

ion

Str

ateg

y

Selective

DepartmentStore

Mass-Discount

PriceStrategy

Low Medium High

Group AMaybellineCover GirlAlmaySally HansenBonne BellWet ’n Wild

Group BRevlonUltimaPrescriptivesMax FactorCoty

Group CEstée LauderClinqueColor Me BeautifulZhenChantelL’Oreal

Group DAdrian ArpelCharles of the RitzLancôme

Group EAvonMary KayOriginsThe Body Shop

Group FElizabeth ArdenChanelChristian Dior

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The Role of Resources and Distinctive Capabilities in Gaining Competitive Advantage

Every organization has resources and

capabilities to do whatever it’s in business to do

Some organizations “can do,” others “can’t do” Competitive advantage implies gaining the edge on

others Organizations strive for sustainable competitive

advantage and set the stage for competition – intense, moderate, or mild.

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Competitive Strategy

Exploits competitive advantage

By finding ways to use resources and distinctive capabilities

Which sets the organization apart from its competitors

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What are the Competitive Strategies?

Contrary to expectations, the number of ways to define competitive strategy are limited

Traditional approaches

New perspectives

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Table 6.2

Characteristics of Miles and Snow’s Adaptive (Competitive) Strategies

StrategyStrategy CharacteristicsCharacteristics Prospector •

•

•

•

Defender ••

••

•

Organization seeks innovationDemonstrated ability to survey dynamic environment and develop new products-services to fit the changing environmentFrequently and continually innovating, developing, and testing new products-servicesCompetitors are uncertain about prospector’s future strategic decisions and actions

Searches for market stabilityProduces only a limited product line for a narrow segment of total potential marketSeeks to protect (defend) its well-established businessDoes whatever is necessary to aggressively prevent competitors from entering their turfCan carve out and maintain niches within its industry that competitors find difficult to penetrate

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Table 6.2 (contd.)

Characteristics of Miles and Snow’s Adaptive (Competitive) Strategies

StrategyStrategy CharacteristicsCharacteristics Analyzer •

•

•

Reactor ••••

Strategy of analysis and imitationThoroughly analyzes new business ideas (products, services, markets) before deciding to jump inWatches for and copies the promising and successful ideas of prospectors

Lacks coherent strategic planSimply reacts to environmental changesMakes strategic adjustments only when finally forced to do soUnable to respond quickly to environmental changes because resources-capabilities are lacking or are not developed or exploited properly

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Abell’s Business Definition Framework

A business can be defined using three dimensions

Customer groups – who we’re going to serve Customer needs – what customer need we’re

attempting to meet Technology or distinctive competencies –

how need is met

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Figure 6.4 Abell’s Competitive Strategies

CompetitiveMarket Scope

Broad

Narrow

Level of MarketSegment Differentiation

High None

Differentiated Undifferentiated

Focus

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Porter’s Generic Competitive Strategies

Competitive advantage comes from only 1 of 2 sources Having the lowest costs in the industry Possessing significant and desirable differences from

competitors The second factor is the scope of product-market Mix of these factors provide the basis for:

Cost leadership strategy (or low-cost strategy) Differentiation strategy Focus strategy

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Figure 6.5 Porter’s Generic Competitive Strategies

CompetitiveMarket Scope

Broad

Narrow

CompetitiveAdvantage

Low Costs Product-ServiceDifferences

Cost Leadership Differentiation

Focus(Cost)

Focus(Differentiation)

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Contemporary Perspectives on Competitive Strategy

Newer perspectives provide an expanded, and perhaps more realistic, description of what competitive strategies organizations are using

Integrated low-cost differentiation strategy

Mintzberg’s generic competitive strategies

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Figure 6.7 Mintzberg’s Generic Competitive Strategies

Differentiation

Undifferentiated

By Price

By Marketing Image

By Product Design

By Product Quality

By Product Support

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Implementing Competitive Strategy

Without implementation a strategy is nothing more than an idea

Implementing competitive strategiesThe role of functional strategies

• What strategy is most appropriate?

• How is that strategy implemented?

Competitive postures and actions• Offensive moves

• Defensive moves

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Evaluating and Changing Competitive Strategy

Responsibility of managing strategically doesn’t stop after implementation

Evaluation of competitive strategy assesses:Various functional areasActivities performed in those areas

Change when evaluation shows the strategy• Doesn’t have the intended impact

• Hasn’t resulted in desired levels of performance

© Prentice-Hall 2005 6-23

Chapter Six

Questions